NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Insurance
Ms. Kavita buys a motor insurance policy. She tells the insurer that her car is used only for personal purposes, though she regularly uses it for paid taxi trips. Which principle of insurance is primarily breached?
The principle breached is utmost good faith. Insurance contracts require the proposer to disclose all material facts honestly. Misrepresenting commercial taxi use as personal use hides a material fact affecting risk, so the insurer may treat the contract as voidable and repudiate claims.
- AInsurable interest
- BUtmost good faithCorrect
- CProximate cause
- DContribution
Explanation
The contract of insurance requires the proposer to disclose all material facts truthfully. Misstating the use of the vehicle is a breach of utmost good faith (uberrimae fidei), allowing the insurer to repudiate the claim. Insurable interest is not in question as she owns the car.
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